* FTSEurofirst 300 index falls 0.2 percent
* European shares track overseas market selloff
* Retail sector index fall the most
By Atul Prakash
LONDON, Sept 26 (Reuters) - European shares slipped to a new one-month low on Friday, with a sharp sell-off in U.S. and Asian stocks prompting investors to trim their trading positions on the last business day of the week.
The FTSEurofirst 300 index of top European shares was down 0.2 percent at 1,370.01 points by 0804 GMT after falling up to 1,367.01, the lowest level in a month. The index is down 2.3 percent this week and heads for its biggest weekly drop in almost two months.
European shares mirrored a sharp decline in other markets, with the S&P 500 suffering its biggest one-day drop since July on Thursday as Apple shares tumbled and the dollar rose to a four-year high. Major U.S. indexes fell 1.5 to 1.9 percent, while Japan's Nikkei fell 0.9 percent.
The dollar held near a four-year high against a basket of major currencies, and further gains looked likely for the U.S. currency as it boasted its the biggest yield advantage over the euro in 15 years.
"We have seen continued strengthening in the dollar and there is growing uncertainty in the market about the U.S. tightening cycle," Ian Richards, global head of equities strategy at Exane BNP Paribas.
"We have got a great deal of policy uncertainty in the next couple of months. I would imagine that people's risk premium expectations will continue to drift higher and that will continue to put downward pressure on equity markets."
A rise in the U.S. currency tends to make commodities costlier for holders of other currencies, lowers demand for raw materials such as metals and oils and could hit profit margins of mining and energy companies.
On the sector level, the STOXX Europe 600 Retail index , down 0.7 percent, was the biggest decliner, with British grocer Sainsbury's falling 1.6 percent. Industry data published this week showed Sainsbury's sales fell 1.8 percent in the 12 weeks to Sept. 14 in an overall grocery market growing at its slowest rate for more than 20 years.
Analysts said the broader European stock market could fall further in the near-term as concerns of likely rate hike in the United States, lingering geopolitical tensions and worries about the pace of economic growth in Europe prompting investors to trim their exposure to riskier assets.
"Although markets are still well supported by loose monetary policy, they have become tired. A 5 percent correction is plausible given current market volatility," Michael Jarman, head of equity strategy at H2O Markets, said.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
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